A FORTUNE IN OAK AND BRONZE
On the afternoon of 10 August 1628, Stockholm came out to watch the Vasa sail.
She was among the most heavily armed warships in the world: sixty-four bronze guns, ten sails and a gilded hull carrying hundreds of carved figures. Lions, warriors and Roman emperors climbed her sides. Commissioned by Gustav II Adolf, she was built to announce that a small northern kingdom intended to be taken seriously. Foreign ambassadors stood in the crowd, and the lower gunports were open so she could fire a salute as she passed the royal palace.
She sailed roughly 1,300 metres.
A gust of wind pushed her onto her side, but she slowly righted herself as it passed. A second, stronger gust caught her moments later, forcing the open lower gunports beneath the water. Water rushed in and the ship sank within minutes, in full view of the crowd gathered to watch her departure.
Nothing on board had been badly made. The timber was good, the guns were good, and the craftsmen were among the finest available in northern Europe. She was not a bad ship. She was a collection of high-quality components that never added to a seaworthy whole.
Investment arrangements can fail in much the same way. Not because any individual decision was poor, but because no one was responsible for judging how the parts worked together.
Every portfolio sets out to achieve something. Growth, income, capital preservation, succession, philanthropy, or more often, some combination of several objectives at once.
Over time, families accumulate decisions that were sensible in isolation but never revisited against those objectives. A new manager is appointed after a liquidity event, a trust structure is added during a succession exercise, an adviser is introduced to solve a particular problem. The question of how those decisions fit together is often left unanswered. Meanwhile, circumstances change. Businesses are sold, spending requirements evolve and new generations become involved. Decisions that once made perfect sense are carried forward long after the assumptions behind them have changed.
A subtler problem also arises across mandates. Because each manager is appointed and reviewed on their own terms, duplicate risk can build up across the portfolio without anyone seeing the total. Three managers may each beat their benchmark while holding many of the same companies or themes. On paper the family is diversified. In practice, it holds a single concentrated position that no one actively chooses.
Each decision has a rationale. The question is whether the rationale still applies.
This is rarely a failure of the people involved. Managers answer for mandates, lawyers for structures and accountants for tax. Each may be doing their job perfectly well. The difficulty is that no one is asking a different question: does it still make sense?
Asking it is the easier part. Acting on the answer is harder, especially if it means replacing a trusted manager, unwinding a structure or admitting that an earlier recommendation no longer fits. Change almost always carries a cost for someone. The pressure to leave things as they are is rarely spoken aloud.
THIRTY MEN RUNNING
Here is the part of the story that matters most.
Before the Vasa sailed, Captain Söfring Hansson conducted a simple test. Thirty men were instructed to run from one side of the upper deck to the other. As they crossed the deck, the ship rolled violently from side to side and after three crossings, Vice Admiral Klas Fleming stopped the exercise. The ship’s instability was obvious to those present.
The launch went ahead anyway.
The test had done exactly what it was intended to do. The issue was no longer whether there was a problem, but whether anyone was willing to act on it.
The king was campaigning in Poland and had spent years demanding the ship’s completion and in those circumstances, few were inclined to argue for further delay. After the disaster, responsibility proved remarkably difficult to assign.
That lesson feels surprisingly modern.
Portfolios need their own version of the thirty men: a test of the whole arrangement, not just each mandate in turn. Too often, testing stops at the mandate level, where every manager is measured against their own benchmark. Risks can sit between them, as many investors found in 2022, when bonds and equities fell together and the cushion they had relied on gave way.
Even where the whole is tested, the harder question is who acts on the result. The Vasa’s test was run, and she still sailed. The challenge is rarely just expertise, often, it is retaining the objectivity needed to act on the answers.
That objectivity is harder to maintain as wealth management becomes more integrated. Advice, implementation, management and oversight increasingly sit within the same relationship. There is nothing improper in this and it often reflects genuine client demand. But what serves the arrangement as a whole does not always serve each part of it. Independence is valuable not because others lack integrity, but because a degree of distance makes it easier to say plainly what the test has shown.
True independence can be commercially inconvenient. It sometimes means recommending that nothing changes or telling a client that an existing manager is doing an excellent job. Occasionally, it means concluding that the best solution lies with someone else. That is precisely what makes it worth having.
WHO HOLDS THE TILLER?
The Vasa was raised in 1961 after 333 years on the floor of Stockholm harbour. Today she is one of Scandinavia’s most visited museums.
She is remembered not because her builders lacked skill, but because no one took responsibility for the whole, and when the test exposed flaws, no one was willing to act.
Investment arrangements are rarely such a shipwreck. They are, however, vulnerable to the same problem.
Some families, trustees and family offices fulfil that role internally, with the capacity to challenge assumptions and make difficult decisions themselves. Others seek external support. The structure matters less than the existence of someone responsible for judging the arrangement as a whole.
That judgement sits at the heart of the work we do, work the institutional world knows as an OCIO, or Outsourced Chief Investment Office. The title itself is secondary. What matters is that someone is looking across the entire arrangement and is free to ask the question that matters most: does it still make sense?
About the Author
Kate Forsyth
Partner, Outsourced CIO
Kate is a Partner and Outsourced Chief Investment Officer for larger families, advising on strategic asset allocation, investment manager selection and portfolio implementation. She joins from Hundle, a London-based multi-family office, where she performed a similar role as Deputy CIO, building and managing portfolios for UHNW clients across public and private markets. Before that, she spent eight years at Ruffer LLP as Investment Manager and Investment Specialist, covering client investment management, investment strategy and portfolio construction. She holds the CISI Chartered Wealth Manager qualification.
Disclaimer
This commentary is intended for information purposes only. It does not constitute a personal recommendation, financial promotion, or regulated advice. Past performance is not a guide to future returns. All views are those of Scott Capital Partners LLP and are subject to change.